NASDAQ NORDEA SMARTBETA MULTIFACTOR ESG EUROZONE INDEX FAMILY

Transcription

1 Rules for the Construction and Maintenance of the NASDAQ NORDEA SMARTBETA MULTIFACTOR ESG EUROZONE INDEX FAMILY Version 1.0 / April 6, P a g e

2 TABLE OF CONTENTS TABLE OF CONTENTS Introduction Index Security Eligibility Index Review and Selection Index Calculations Index Maintenance Corporate Actions General Correction Policy Discretionary Adjustments Limits of liability Disclaimer Appendix A P a g e

3 1. INTRODUCTION 1.1 BACKGROUND This booklet (as amended from time to time pursuant to the terms hereof, the Index Rules ) stipulates the rules for the Nasdaq Nordea Smart Beta Multifactor Eurozone ESG Indexes THE INDEX FAMILY The Nasdaq Nordea SmartBeta Indexes (the Indexes ) are transparent, rule-based equity strategy indexes aimed to provide exposure to a specific factor or multiple factors. The Indexes follow a systematic selection approach where the first step is a liquidity screening and the second step comprises a ranking of and a further selection between the securities that qualified from the first step, according to certain designated factor or factors. 1.3 INDEX CONSTRUCTION AND CALCULATION Nasdaq and Nordea have jointly designed the selection criterias and rebalancing rules for the Indexes. Nasdaq is responsible for the methodology, calculation, dissemination, administration of the Indexes. ISS-Ethics is responsible for the screening of securities to the extent set out in Section 2.2 below. The Indexes are scheduled to be calculated on any day on which any of the eligible underlying markets in the Nasdaq Eurozone Large Mid Cap Index (NQEUROLM) are scheduled to be open for trading for its regular trading sessions except during the Roll Period where all eligible underlying markets needs to be open for trading (each such day a Scheduled Index Trading Day ). If any of the eligible underlying markets is scheduled to be closed in a Roll Period (as defined in section 3.2.2) the Indexes will not be calculated. 2. INDEX SECURITY ELIGIBILITY The Indexes comprise the 30 securities selected pursuant to the Index Rules (each an Index Security and together the Index Securities ), provided that each such security satisfies each of the criterias in section 2.1 and are eligible for selection according to section EXCHANGE ELIGIBILITY The security must be an index constituent in Nasdaq Eurozone Large Mid Cap Index (NQEUROLM) ; Securities designated to the country Greece or listed on the Athens Exchange are not eligible; The type of security must be an ordinary share or a depositary receipt. Closed-end funds, 1 See Appendix A for list of the indexes. The complete list of NASDAQ OMX indexes is available on Global Index Watch, 3 P a g e

4 convertible debentures, exchange-traded funds, limited partnership interests, rights, shares of limited liability companies, warrants and other derivative securities are not eligible; If a company has listed multiple share classes, additional preferred or non-voting shares, only the share class with highest turnover, calculated as the minimum over three and twelve months averages according to the definition in section below, is eligible for inclusion in the index. Interim shares are treated as separate shares from the company s existing share class; Trading data in respect of the security for at least 12 months trading days prior to the relevant Cut -Off Dates for the reviews (as defined below) is generally availiable in the market for such security. If a security of a company, which is not currently an Index Security, is subject to a public offer or if a bidder has disclosed its intention to raise such a bid in respect of a company, such company shall no longer be eligible for inclusion in the Index. Shares in respect of any company where at least 90 % of its issued capital (or voting rights) are controlled by a single shareholder will be deemed ineligible; Securities classified as 8985 Equity Investment Instruments or 8995 Non equity Investment Instruments according to FTSE ICB are not considered eligible for index inclusion; 2.2 ESG ELIGIBILITY Securities in respect of companies that are not approved pursuant to screening performed by ISS- Ethix AB and involving the below elements will be excluded from the selection of eligible securities: (i) Verified and ongoing breaches of international norms [2] (ii) Verified and ongoing involvement [3 in cluster munitions, anti-personnel mines, depleted uranium, nuclear weapons, and biological and chemical weapons (iii) Companies with involvement of a certain degree [4] in alcohol, tobacco, Military Equipment, pornography, gambling, fossil fuels (coal, oil sands and arctic drilling) 2 Norm Based Research assesses companies adherence to global principles on human rights,labor standards, environmental protection, and anti-corruption, as set out in international initiatives and guidelines. More information on the Norms methodology is available at: 3 Involvement is defined as the Development, Maintenance, Marketing, Sale, Brokering, Operation of facilities, Production, Stockpiling, System integration/ Prime contractor Testing, Training, Transfer/ Transport, or Upgrade of any controversial weapon or key component thereof. 4 Alcohol: Not more than 5% of total revenue is derived from production, distribution or services from alcohol. Tobacco: Not more than 5% of total revenue is derived from production, distribution or services from tobacco. Military Equipment: Not more than 5% of total revenue is derived from production, distribution or services from Military Equipment. Pornography: Not more than 5% of total revenue is derived from production, distribution or services from pornography. Gambling: Not more than 5% of total revenue is derived from production, distribution or services from gambling. Coal & Unconventional Extraction (oil sands and arctic drilling): Zero tolerance of producers of coal mining, oil sands and arctic drilling. Fossil fuels: Not more than 5% of total revenue is derived from production, distribution or services from fossil fuels. 4 P a g e

5 Screening and related research of this Index as set forth in this Section 2.2 is provided exclusively by ISS-Ethix AB based on the ESG criteria defined in these Index rules. In addition, Securities in respect of companies included on Nordea s exclusion list ( ) will be excluded from the selection of eligible securities. Exclusions based on the Nordea exclusion list will be done by Nasdaq at the respective Cut-Off Date 3. INDEX REVIEW AND SELECTION 3.1 REVIEWS The indexes are reviewed quarterly by Nasdaq who applies the criterias in sections and below. The review is conducted based on data available up to (and including) the last Scheduled Index Trading Day in September, December, March and June (each such day a Cut-Off Date ) 3.2 REBALANCING The Indexes will be equally weighted at review, meaning that each Index Security will be assigned an equal weight. The equal weights will take effect immediately after close of business on the last Roll Day (defined in Section 3.2.3) in each Roll Period (defined in Section 3.2.2). The rebalancing will be undertaken using a rolling method (Roll) during a period of five days (Roll Period) as detailed below in this section 3. 1) Any replacements in the Index, meaning new Index Securities entering the index ( New Index Securities ) by replacing existing Index Securities ( Old Index Securities ), will be rolled into the Index over the Roll Period (consisting of five consecutive Roll Days), replacing the Old Index Securities with an approximately evenly distributed amount each Roll Day. 2) The sum of the market value of the Index Securities that are sold on each Roll Day is equally distributed among the New Index Securities, i.e. the amount of each New Index Security is determined so that the market value of each New Index Security, on each Roll Day, is equal and sums up to the same market value as for the Index Securities that are sold that day. 3) At close of the last Roll Day in a Roll Period, each remaining Index Security is assigned the weight of 1/n (equally weighted), where n is the total number of Index Securities on the first trading day after rebalancing. 5 P a g e

6 The term Roll Period shall mean, in respect of each Index, a period of the last five (5) Trading Days of October, January, April and July, respectively during which all of the underlying markets are scheduled to be open for trading. A Roll Day is a Scheduled Index Trading Day in the Roll Period during which all of the underlying markets are open for trading. The number of Old Index Securities in the Index during a Roll Period is defined as n Old. The number of shares (the Index Shares ) of an Old Index Security i = 1,, n Old after close of business on a Scheduled Index Trading Day t k is defined as IS i 0ld (t k ) The day before a Roll Period starts is t 0 (k = 0) and the Index Shares of an Old Index Security on that day is IS i 0ld (t 0 ). In the Roll Period t k = 1,,5 the Index Shares of an Old Index Security is calculated as IS i Old (t k ) = Round[(IS i 0ld (t k 1 ) 0.2 IS i Old (t 0 )), 0] i.e. 1/5 of Index Shares of an Old Index Security, IS i 0ld (t 0 ), is sold at closing price on each Roll Day. The Total Market Cap from all Old Index Securities sold on each Roll Day is MCAP out n Old (t k ) = (0.2 IS Old i (t 0 ) p Old i (t k )) Where p i Old (t k ) is the closing price of the Old Index Security i on Roll Day t k. The Total Index Market Cap sold each Roll Day equals the Total Index Market Cap bought on that Roll Day (with the exception of the small change in Market Cap due to roundings) MCAP in (t k ) = MCAP out (t k ) The Index Shares of a New Index Security i, immediately after close of business for Roll Day t k k = 1,,5 is IS i New (t k ) = IS i New (t k 1 ) + Round [ MCAPin (t k ) n New p i New (t k ), 0] Where n New is the number of New Index Securities that enters into the Index in the Roll Period, IS i New (t 0 ) = 0 and p i New (t k ) is the closing price of the New Index Security i on Roll Day t k. This means that the Market Cap value of all sold Index Securities is evenly distributed among the n New New Index Securities. The Index Securities (including the New Index Securities but excluding the Old Index Securities) after close of business the last Roll Day t 5 are defined as IS i 5. At the end (immediately after close of business) of the last Roll Day t 5 in the Roll Period the Index Shares of all Index Securities, i, included in the Index is set to IS i (t 5 ) = Round [ MCAPIndex (t 5 ) n Index p i (t 5 ), 0] Where n Index is the total number of Index Securities after the roll have been completed, p i (t 5 ) is the closing price of Index Security i on Roll Day t 5 and 6 P a g e

7 MCAP Index n Index (t 5 ) = (IS 5 i p i (t 5 ) ) Is the Market Cap value of the Index at the end of Roll Day t 5 in the Roll Period. De-listings in the Roll Period: 1) If an Index Security that is not in the set of Old or New Index Securities is delisted: At the time of delisting the Market Cap value of that particular Index Security is evenly distributed to the remaining Index Securities that are not in the set of Old or New Index Securities. This means that the roll process is not affected. 2) If an Index Security that is in the set of Old Index Securities is delisted: At the time of delisting the Market Cap value of that particular Index Security is added to the MCAP in (t k ) value above and the MCAP out (t k ) value as of this day excludes that Index Security in the calculation. This means that the remaining Market Cap value of the delisted Index Security is re-invested evenly in the set of New Index Securities at the time of de-listing. 3) If a New Index Security is delisted and the delisting is unknown before the Roll Period starts: At the time of delisting the Market Cap value of that particular New Index Security is added to the MCAP in (t k ) value above and the new value in the calculation of IS i New (t k ) is reduced by 1. This means that the remaining Market Cap value of the delisted Index Security is re-invested evenly in the set of New Index Securities at the time of de-listing. If all the New Index Securities are delisted then the Market Cap Value needs to be (evenly) re-invested in the remaining Index Securities that are not in the set of Old Index Securities. 3.3 SELECTION The selection of the composition of each Index, as determined by Nasdaq in accordance with these Index Rules, is conducted using a two-step approach, where the first step comprises a liquidity screening and the second step is a ranking based on the designated factor(s). In the event that, after the Cut-Off Date, an Index Security is no longer eligible as Index Security according to section 2 of these Index Rules, such Index Security will be removed and will not be replaced until the next quarterly rebalancing. The liquidity screening on each Cut-Off Date is based periodically average daily turnover calculated as follows: MIN(3mADTV; 12mADTV) where; 3mADTV = The prior three-month average daily traded volume in EUR 12mADTV = The prior 12-month average daily traded volume in EUR 7 P a g e

8 1. Any security that does not fulfill the minimum liquidity criteria of 5 million EUR is excluded by Nasdaq, i.e. it is required that MIN(3mADTV; 12mADTV)> 5 MEUR All securities that fulfill the minimum liquidity criteria 1. are selected as candidates for selection as Index Securities by Nasdaq NASDAQ NORDEA DIVIDEND FACTOR For all securities, S i,t {S 1,t, S 2,t,, S m,t }, that fulfill the criteria s in 3.3.1, on the Cut-Off Date for the review t, the Dividend Factor is calculated by Nasdaq as the applicable 12-months dividend yield as follows: 1Y D i,t y i,t = { p ife i,t i,t 1Y 1Y 2 D i,t 0 ife 1Y 1Y i,t < 2 D i,t Where y i,t = One year dividend yield for security i on the Cut-Off Date t p i,ti = Price for security i on the latest Trading Date t i for security I that fullfils t i t D 1Y i,t, is the sum of all dividend amounts, excluding extra cash, in EUR for security i that is excluded from the share in the previos one year period from the Cut-Off Date t (including t) 2. Dividend amounts are adjusted for possible stock-splits. Dividend payments may not be t distributed exactly evenly over one calendar year, i.e. does not fall on the same day and month each year, therefore Nasdaq will, at its discretion, assess payments to a period of maximum one year and one month in order to take a full cycle into account. E 1Y i,t, is the latest updated (available at t) 12M average of the basic earnings per share, in EUR for security i, before extraoridinary items. The Normalized Dividend Factor is calculated as Where y i,t = y i,t y t StDev(y t ) 2 Forward looking payments will not be taken into account, only those effective and prior to the Cut-Off Date 8 P a g e

9 m y t = 1 m y i,t m StDev(y) t = ( 1 m 1 (y i,t y t) 2 ) This means that securities with high Dividend Factor also gets a high Normalized Dividend Factor NASDAQ NORDEA MOMENTUM FACTOR For all securities, S i,t {S 1,t, S 2,t,, S m,t }, that fulfill the criteria s in 3.3.1, on the Cut-Off Date for the review t, the Momentum Factor is calculated by Nasdaq as the 12-months Momentum as follows: n i M i,t = (1 + Ret i,ti k) k=0 Where t i is the latest trading day for security i that fulfills t i t, n i is the number of actual trading days for security i in the period starting at the latest trading day t i 0 (excluding) for security i that fulfills t i 0 t 12M and ending at t i (including) where t 12M is the corresponding Cut-Off Date one year back relative to t and: M i,t = Momentum for security i on Cut-Off Date t p i,s Ret i,s = (p i,s 1 d i,s ) j i,s Ret i,s = Return for security i on day s p i,s = Price for security i on day s d i,s = Dividend amount in EUR for security i on day s j i,s = Adjustment factor for adjusting the share price of a constituent security i due to corporate actions by the issuing company on day s s k =The trading day k trading days before trading day s for the respective security The Normalized Momentum Factor is calculated as Where M i,t = M i,t M t StDev(M t ) 9 P a g e

10 m M t = 1 m M i,t m StDev(M) t = ( 1 m 1 (M i,t M t) 2 ) This means that securities with high Momentum Factor also gets a high Normalized Momentum Factor NASDAQ NORDEA BETA FACTOR For all securities, S i,t {S 1,t, S 2,t,, S m,t }, that fulfill the criteria s in 3.3.1, on the Cut-Off Date for the review t, the Beta Factor is calculated by Nasdaq from the 12-months realized covariance between each security and the Reference Index as follows: β i,t = C i0,t C 00,t Where n i 1 C i0,t = 1 n i 1 (RetA i,t i (k) Ret ) A i,t i (Ret A 0,ti (k) Ret ) A 0,t i k=0 A i,s 1 Ret A i,s = k=0 p i,s k (p i,s k 1 d i,s k ) j i,s k Ret A 1 i,t i = Ret A i,t n i (k) i and t i is the latest common trading day for security i and the Reference Index (Referenced as security S 0,t, i.e. with indexation i = 0) that fulfills t i t, n i is the number of actual trading days in the period starting at the last trading day for the Reference Index t i 0 (excluding) that fulfills t i 0 t 12M and ending at t i (including) that is common for security i and the Reference Index where t 12M is the corresponding Cut-Off Date one year back relative to t and: n i 1 k=0 C i0,t = Covariance between security i and the Reference Index on Cut-Off Date t Reference Index = NASDAQ EURO 50 Total Return Index (NQEURO50T) Ret A i,s = Ackumulated Return for security i on day s 10 P a g e

11 p i,s = Price for security i on day s d i,s = Dividend amount in EUR for security i on day s j i,s = Adjustment factor for adjusting the share price of a constituent security i due to corporate actions by the issuing company on day s t i (k) = The Common Trading Date k Common Trading Days before the Common Trading Date t i s k =The Trading Day k trading days before Trading Day s for the respective security A i,s = The number of Trading Days for security i in the period starting at and including t i (k 1) and ending at and excluding t i (k) where k is implicitly given by t i (k) = s The Normalized Beta Factor is calculated as Where β i,t = β i,t β t StDev(β t ) m β t = 1 m β i,t StDev(β) t = ( 1 m 1 (β i,t β t) 2 ) m 0.5 This means that securities with low Beta Factor gets a high Normalized Beta Factor NASDAQ NORDEA MULTIFACTOR ESG EUROZONE INDEX For all securities, S i,t {S 1,t, S 2,t,, S m,t }, that fulfill the criteria in 3.3.1, on the Cut-Off Date for the Eurozone Indices and the review t, the total Normalized Momentum, Dividend and Beta Factor is calculated as f i,t MDB = (M i,t + y i,t + β i,t )/3 All securities S i are then ranked according to descending f i,t MDB. First time selection (Feb 1, 2018): The securities that rank among the top 30 are then selected as Index Securities for the Nasdaq Nordea SmartBeta Multifactor ESG Eurozone Indices by Nasdaq. Continued selections (any selections following Feb 1, 2018): Select the 30 top ranked Index Securities for the Nasdaq Nordea SmartBeta Multifactor ESG Eurozone Indices according to the Buffer Rules: 11 P a g e

12 BUFFER RULES - If an Index Security is not ranked among the top 45 securities the Index Security shall be replaced by the non-index Security with the highest ranking -If a security which is not an Index Security is ranked among the top 15 securities it shall automatically replace the Index Security with the lowest ranking. 4. INDEX CALCULATIONS 4.1 GENERAL Nasdaq calculates and disseminates the index-values in real-time. 4.2 INDEX FORMULA See chapter 4 in Nasdaq Global Index Family Methodology. 4.3 INDEX SHARES The number of shares of a constituent applied in the indexis a result of the quarterly review and is fixed in the period between reviews with the exception of adjustments for corporate actions with priority for existing shareholders. 5. INDEX MAINTENANCE See chapter 6 in Nasdaq Global Index Family Methodology 6. CORPORATE ACTIONS See chapter 7 in Nasdaq Global Index Family Methodology. 7. GENERAL CORRECTION POLICY See chapter 9 in Nasdaq Global Index Family Methodology. 12 P a g e

13 8. DISCRETIONARY ADJUSTMENTS Nasdaq may, due to special circumstances, if deemed essential, apply discretionary adjustments to the Index. 9. LIMITS OF LIABILITY Neither Nasdaq, Inc or any of its affiliates or subsidiaries (collectively Nasdaq ) assumes any liability for any loss or damage related to or arising out of the use of the Indexes. Nasdaq expressly disclaims all warranties of accuracy, completeness, merchantability or fitness for a particular purpose with respect to the Indexes. Neither Nasdaq nor any third party make any express or implied warranties or representations in respect of the Indexes, the results to be obtained by the use hereof or the value of the Indexes at any given time. The Index Rules in respect of the Index does not constitute advice in any form (tax, legal, accounting, regulatory or otherwise) in respect of any investment strategy or investment that may be linked to the Index. Nordea and/or Nasdaq does not in any capacity endorse or make any representation or warranty, express or implied, in connection with any investment strategy or investment linked to the Index. Anyone reading these Index Rules should seek such advice as they consider necessary from their professional advisors, legal, tax or otherwise, without reliance on Nordea or Nasdaq to satisfy themselves that they fully understand these Index Rules and the risks associated with the Index or any investments linked to the Index. Furthermore, this document is not intended for distribution to, or use by any person in, a jurisdiction where such distribution is prohibited by law or regulation. Nordea and Nasdaq are not liable for any loss or damage resulting from Swedish or foreign legislative enactment, actions of Swedish or foreign authorities, war, power failure, telecommunication failure, fire, water damage, strike, blockade, lockout, boycott, or other similar circumstances outside the control of Nordea or Nasdaq. The reservation with respect to strikes, blockade, lockout and boycott also applies if Nordea or Nasdaq adopts or is the object of such conflict measures. Nordea and Nasdaq and their affiliates assume no liability of any nature (including, but not limited to negligence) for any loss, damages, costs, claims and expenses related to or arising out of the use of the Indexes or any data included therein. Nordea and Nasdaq and their affiliates expressly disclaims all warranties, expressed or implied, as to the availability, accuracy, uninterrupted calculation, completeness, merchantability or fitness for a particular purpose with respect to the Indexes or any data included therein. Neither Nordea nor Nasdaq, their affiliates nor any third party makes any express or implied warranties or representations with respect to the Indexes, the results to be obtained by their use or the value of the Indexes at any given time. Without limiting any of the foregoing, in no event shall Nordea or Nasdaq or any of their affiliates have any liability for any direct damages, lost profits or special, incidental, punitive, indirect, or consequential damages, even if notified of the possibility of such damages. 13 P a g e

14 10. DISCLAIMER Each of Nordea and Nasdaq may, from time to time, exercise reasonable discretion as they deem appropriate in order to ensure Index integrity. Nordea and Nasdaq may also, due to special circumstances, if deemed essential, apply discretionary adjustments to ensure and maintain the high quality of the index construction and calculation. Nordea and Nasdaq and their affiliates do not guarantee the accuracy or completeness of any Index or of the data used to calculate the Index or determine the Index components, or the uninterrupted or un-delayed calculation or dissemination of any Index. Nordea and Nasdaq and their affiliates do not guarantee that any Index accurately reflects past, present, or future market performance. 14 P a g e

15 APPENDIX A Instrument ID Instrument Name Currency NQNDMFEEUROP Nasdaq Nordea SmartBeta Multifactor ESG Eurozone PR EUR NQNDMFEEUROT Nasdaq Nordea SmartBeta Multifactor ESG Eurozone TR EUR NQNDMFEEURON Nasdaq Nordea SmartBeta Multifactor ESG Eurozone NR EUR 15 P a g e